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TCL > November 2013 Issue > Summaries of Selected Opinions

November 2013       Vol. 42, No. 11       Page  163
From the Courts
U.S. Court of Appeals for the Tenth Circuit

Summaries of Selected Opinions

Summaries of selected Tenth Circuit Court of Appeals Opinions appear on a space-available basis. The summaries are prepared for the Colorado Bar Association (CBA) by Katherine Campbell and Frank Gibbard, licensed Colorado attorneys. They are provided as a service by the CBA and are not the official language of this Court. The CBA cannot guarantee the accuracy or completeness of the summaries. Full copies of the Tenth Circuit decisions are accessible from the CBA website: www.cobar.org (click on "Opinions/Rules/Statutes").


No. 12-6108. United States v. McKye. 08/20/2013. W.D.Okla. Judge Murphy. Securities Fraud—Promissory Notes as "Securities"—Necessity for Jury Finding.

A jury convicted defendant of conspiracy to commit money laundering and fraud in connection with the purchase and sale of securities. The Tenth Circuit reversed defendant’s conviction.

An entity called Heritage, controlled by defendant, prepared revocable trusts for clients. Clients who could not afford to pay the full cost for the trust preparation service could sign a promissory note. These notes sometimes were accompanied by documentation suggesting that a lien had been created on the client’s home. Heritage also marketed investment notes to other clients, using the lien documentation from its revocable trust clients to suggest that there was a pledge of collateral securing their investments. In addition, defendant instructed Heritage salesmen to tell potential investments that their investment notes were backed by real estate notes and mortgages. An IRS special agent later determined that defendant was operating a Ponzi scheme, because principal from newer investors was being used to make interest payments to older investors. At trial, the district court rejected defendant’s argument that the jury should determine whether the investment notes were "securities" for purposes of the charged crimes; instead, it instructed the jury that all notes are securities.

On appeal, defendant challenged the district court’s instruction. He argued that under U.S. Supreme Court precedent, not all notes are securities, and the issue of whether the notes in this case were securities should have been decided by the jury. The Circuit noted that whether a particular note is a security has both factual and legal components. Mixed questions of law and fact should be submitted to the jury when they involve an element of the offense. Here, the question of whether the alleged fraud involved a security is an element of the crime of securities fraud. The district court therefore erred when it instructed the jury that all notes are securities.

This instruction did not direct a verdict because it did not tell the jury that the investment notes marked to investors were "notes." Therefore, the instructional error could be reviewed for harmlessness. However, the error was not harmless because the government failed to point to evidence that the investment notes were securities, and because defendant presented some evidence that the risk associated with the investment notes was reduced by their purported security by the "trust loans," thus potentially negating one factor of the Supreme Court’s test for a security. The Circuit therefore reversed defendant’s conviction.

No. 12-3047. United States v. Avila. 08/21/2013. D.Kan. Judge Ebel. Appeal After Guilty Plea—District Court’s Misinformation Concerning Right to Appeal—Voluntariness of Plea.

Defendant pleaded guilty to possession of a controlled substance with intent to distribute. After the district court denied his motion to suppress, he entered an unconditional guilty plea to the offense. At the change-of-plea hearing, the district court informed defendant that if he had gone to trial, he could have appealed his conviction, and that if he pleaded guilty, he also had the right to appeal. When defendant later attempted to appeal, the government argued that he had waived his right to challenge the denial of his motion to suppress by entering into an unconditional plea.

The Tenth Circuit noted that defendant could bring his appeal if he could establish that his guilty plea had been involuntary. A guilty plea becomes unknowing and involuntary when the district court misinforms a defendant that he or she has a right to an appeal without ensuring the defendant understands that a plea may limit that right in material ways. Here, the district court suggested that defendant would have the same unlimited right to appeal following the entry of his plea that he would have had after a trial. The record did not indicate that his attorney or the government advised him that his right to appeal would be compromised by his guilty plea. The district court’s misinformation thus made defendant’s plea involuntary. Accordingly, the Circuit vacated defendant’s conviction and remanded the case with instructions to the district court to permit defendant to withdraw his guilty plea.

Nos. 12-1164 & 12-1220. United States v. Holmes. 08/23/2013. D.Colo. Judge Holloway. Tax—Defunct Corporation—Liquidation—Distributions to Sole Shareholder—Colorado or Federal Statute of Limitations.

The IRS sued defendant to collect federal taxes owed by a now-defunct corporate entity. Defendant had been the sole shareholder of the corporation. As the corporation was winding down before it was dissolved in 2005, it made significant distributions to defendant. The IRS asserted that defendant was liable under a Colorado statute providing that if a corporation’s assets have been distributed to an owner in the liquidation, a creditor of the dissolved corporation may enforce its claim against the owner. The district court entered judgment of more than $2.5 million in the IRS’s favor, which defendant appealed.

Defendant’s single appellate claim was that the IRS’s claims were barred by the Colorado two-year statute of limitations. The IRS relied on the federal ten-year statute of limitations for collection of a tax after the tax was properly assessed. The Tenth Circuit determined that the ten-year period applied because the IRS had established that the tax had been properly assessed. In response to defendant’s argument that the federal limitations period does not apply to claims brought under state law, the Circuit stated it would not ignore that the purpose of the proceeding was to collect a federal tax. The district court’s judgment was affirmed.

No. 11-3317. United States v. Brooks. 08/29/2013. D.Kan. Judge Holmes. DNA Evidence—Chain of Custody—Sufficiency of Evidence Based on Circumstantial Evidence and Reasonable Inference.

Defendant was convicted, after a jury trial, of armed bank robbery. Two tellers, Gilbert and Sherrod, were present at the bank when it was robbed. As Sherrod approached the bank from the parking lot, a man dressed in black and wearing a mask and gloves pointed a gun at her. Gilbert let defendant and Sherrod into the bank, and the tellers then attempted to open a safe that contained a relatively small amount of money. When Gilbert could not correctly enter her code to open that safe, the man struck her with his gun. Gilbert then moved to a safe with more money and successfully opened it. The robber bound the ankles and wrists of both tellers with plastic ties while he emptied the safe. Defendant asked Sherrod for her car keys, but after she failed to produce them, he did not ask Gilbert for hers. The tellers eventually managed to summon the police. A responding officer noted that Gilbert did not seem very upset and that the ties binding her were not as tight as those on Sherrod. The ties, along with a glove fragment, were later tested for DNA and found to contain male DNA.

Defendant became a suspect in the crime after Gilbert’s ex-husband contacted the police and told them he believed defendant had committed the robbery. At the time of the robbery, defendant was having an affair with Gilbert and was frequently in telephone contact with her, though these calls ceased for a time after the robbery. Gilbert later testified that defendant had sexual intercourse with her the night before the robbery. She did not bathe or shower before going to work at the bank the next morning. A scientist was able to match defendant’s DNA with that found on one of the zip ties. The jury heard conflicting testimony concerning whether the DNA on the zip tie could have been transferred as a result of defendant’s recent sexual intercourse with Gilbert. There also was testimony that several months after the robbery, defendant was seen with large sums of cash that could not be explained by his financial records.

On appeal, the Tenth Circuit addressed five issues. First, it determined that the district court properly admitted the DNA evidence found on the plastic zip ties at the crime scene. Second, the Circuit determined that a minor discrepancy by the government’s DNA witness in what was reported to the defense before trial did not represent a discovery violation that would justify excluding her testimony, absent evidence of bad faith. Third, the Circuit ruled that the district court properly admitted evidence of defendant’s possession of large amounts of cash; the fact that the possession was observed several months after the robbery did not make it too remote to be admitted. Fourth, the Circuit held that there was sufficient evidence to support defendant’s conviction, given the circumstantial evidence of his presence at the robbery and the reasonable inferences to be drawn from that evidence. Fifth, the fact that a juror failed to inform the court and the parties during voir dire that he was under investigation for a crime did not require reversal of the conviction, given the juror’s testimony that the omission was inadvertent and the district court’s finding that no bias on the juror’s part had been demonstrated. The Circuit accordingly affirmed defendant’s conviction.

No. 11-1559. ECCO Plains, LLC v. United States. 09/04/2013. D.Colo. Judge O’Brien. Federal Tort Claims Act—Interference With Contract Rights—Illegal Exaction—Jurisdiction.

While acting as a receiver for a bank, the Federal Depository Insurance Corporation (FDIC) used proceeds from the sale of cattle belonging to a limited liability company (LLC) to pay down a loan of one of the two LLC members. The LLC members, English and Ulrich, had financed their contributions to the LLC through the bank; the LLC did not pledge its assets as security. The LLC members had agreed that Ulrich would receive the return of his capital contribution before English received his. After the bank’s insolvency, the FDIC sold some cattle and applied all of the proceeds to English’s debt. Ulrich sued in his own name under the Federal Tort Claims Act (FTCA), claiming the FDIC had no authority to use the cattle sale to pay down English’s loan. The LLC itself sued under the Fifth Amendment’s Takings Clause. The district court dismissed for failure to state a claim.

The Tenth Circuit affirmed, but for reasons different from those of the district court. As to Ulrich’s FTCA claim, the Circuit noted that the FTCA does not waive governmental immunity for interference with contract rights. Despite plaintiff’s characterization of his claims as conversion and negligence, his actual claim was that the FDIC interfered with his contractual right to the sale proceeds pursuant to the agreement between the LLC members.

On the LLC’s takings claim, the Circuit held that it should have been construed as an illegal exaction claim and dismissed for lack of jurisdiction. An illegal exaction claim exists when the plaintiff has paid money to the government and seeks return of any part that was improperly paid, exacted, or taken from the claimant in contravention of the Constitution, a statute, or a regulation. Because the LLC claimed reimbursement based on the FDIC’s act under a statutory power, the Federal Claims Court had exclusive jurisdiction. The dismissal was affirmed.

No. 12-2053. Market Center East Retail Prop., Inc. v. Lurie (In re Market Center East Retail Prop., Inc.). 09/19/2013. D.N.M. and Bankruptcy Appellate Panel. Chief Judge Briscoe. Attorney Fees—Bankruptcy—Lodestar Method—Discretion—List of Factors to Consider.

Market Center East Retail Property Inc. (Market Center) contracted to sell a shopping center to Lowe’s Home Center (Lowe’s), but Lowe’s backed out. Market Center hired California lawyer Barak Lurie to sue Lowe’s for breaching the contract. Lurie’s customary hourly rate was $395. The parties agreed to a rate of $200 per hour, plus a contingency fee equal to 15% of any sums recovered in damages or the purchase price of the shopping center occurring ninety days or earlier before trial.

Suit was filed, Lowe’s agreed to buy the shopping center, and Market Center promptly filed for bankruptcy protection. Lowe’s eventually purchased the shopping center, which allowed Market Center’s creditors to be paid in full with a remainder to be returned to Market Center. Lurie claimed attorney fees from this sum. The bankruptcy court found that Market Center had knowingly misled Lurie by failing to tell him of the planned bankruptcy filing. Lurie had spent 43.75 hours on Market Center work.

The bankruptcy court awarded Lurie $350,752 in attorney fees. It calculated the amount based on the 15% contingency-plus-hourly agreement, resulting in an hourly rate of $8,637. The Bankruptcy Appellate Panel affirmed. Market Center appealed, claiming that (1) the attorney fees should have been calculated using the lodestar approach, (2) the bankruptcy code requires courts to apply a list of factors, and (3) a reasonable fee in a bankruptcy case should be determined the same way fees are calculated in civil rights cases.

The Tenth Circuit noted that the adjusted lodestar methodology is used to calculate reasonable attorney fees in bankruptcy matters, whereby various discretionary factors are considered. The Circuit rejected Market Center’s argument that civil rights jurisprudence limits adjustments to the lodestar amount. Although reiterating that the bankruptcy court has wide discretion to authorize fee arrangements, the Circuit held that the bankruptcy court should have, but did not, consider all of the relevant factors. In addition, the bankruptcy court erred in applying the factors it did consider. Therefore, the award of attorney fees was reversed and remanded for further proceedings.

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